The administration of U.S. President Donald Trump has thrown the world of foreign trade into a muddle.
Washington has started renegotiating the North American Free Trade Agreement with Canada and Mexico. It has also entered talks with South Korea to demand amending their mutual bilateral free trade agreement.
Furthermore, the United States has opened investigations of possible intellectual property violations by China, with an eye toward possible sanctions.
These moves have come in the wake of the Trump administration’s earlier decision to withdraw the United States from the Trans-Pacific Partnership free trade arrangement.
By taking those measures, the U.S. administration is likely hoping to stick to its signature “America First” policy and to gratify its supporters in the industrial Rust Belt, who have pushed Trump to the presidency.
But pursuit of U.S. interests alone would only spew unproductive discord and could negatively impact global trade and investments.
The Trump administration should change its views and change its mind.
Washington insists on reducing U.S. trade deficits in renegotiating NAFTA and the FTA with South Korea. But trade balances cannot be controlled by trade agreements alone, affected as they also are by a number of other factors, such as industrial structures and economic conditions of the nations concerned.
It is particularly questionable that the United States is attempting to have NAFTA rules of origin–a set of rules for defining how many parts made in North America a product should contain to qualify for tariff-free access–reviewed so that the content requirement for automobiles will be raised only for U.S.-made parts.
Washington is apparently hoping to increase the exports of automobiles that contain more parts made in the United States. That is, however, asking too much.
NAFTA has been in effect for more than two decades. Automakers around the world have organized their production systems in North America on the assumption that NAFTA rules are in force there. They have relocated their plants to Mexico, where labor is relatively cheap, and are exporting automobiles from there to the United States.
Not only Mexico and Canada but also auto industry circles within the United States are opposed to the aims of the Trump administration.
The Office of the U.S. Trade Representative has opened investigations of China on the basis of Section 301 of the Trade Act on suspicion of violations of intellectual property rights held by U.S. companies. The USTR could decide to impose sanctions, such as higher tariff rates, if it were to make a judgment against China.
The United States is not the only country disgruntled with China. Japan and European nations are also complaining, for example, that Beijing is forcing foreign-affiliated businesses operating in China into setting up joint ventures with local companies and thereby transferring their technologies.
That said, the United States, instead of China, would be the one drawing fire from the global community if it were to initiate unilateral sanctions that are not allowed under international rules. What the United States should be doing instead is cooperating with Japan and European nations in calling on China to mend its policy.
Back to the subject of NAFTA, there are other topics, such as online electronic commerce, that should be included anew in the agreement. Continued self-righteous arguments to be made by the United States would do little to help constructive discussions in similar directions.
A departure from the shortsighted “America First” mind-set would benefit the United States in the end. Tokyo should also draw on meetings of the Japan-U.S. Economic Dialogue and other occasions in making that argument over and over again.